Programación en LabVIEW

Having set out the welfare economic analysis foundation, and explained the social choice theory approach, there are three other concepts in this thesis that must also be clearly defined: the hierarchical nature of social welfare, economic growth and systems analysis. 2.2.2.1 Hierarchical Nature of Social Welfare

Within the literature, various terms are used to describe welfare (Bonner 1986; Ng 2001). Often terms such as social welfare, quality of life and standard of living are used interchangeably (D. Johnson 1996; Ng 1999; Ayres 1996b), implicitly implying that there is no effective difference between them. The position taken within this thesis is that a hierarchy of understanding welfare exists (also see Sen 1985b, 1987a; Williams 1987). Distinct differences between terms should be made explicit as they can be usefully measured by different indices. Without appreciating these differences, certain indices can ignore relevant information about welfare (Slesnick 2001). Such shortfalls lead to ineffective indicators and misinformed policy decisions (Atkinson et al. 1997).

Standard of living is a narrow economic measure of society’s welfare. Standard of living is based on material goods and consumption levels (Latouche 1996; Slesnick 2001). Economic growth is most desirable in improving the standard of living. Economic growth is associated with improving health outcomes, food intake, shelter, clothing and other basic needs. Individual standard of living is a function of personal income and society’s standard of living is a function of national income. Difficulties with interpersonal comparability, distribution levels and equity notwithstanding, national income is a suitable index for measuring standard of living (Dowrick 1994; Mazuumdar 2000).

SoL = w (NI) [2.1]

Where SoL represents standard of living and NI represents national income, calculated either through consumption or expenditure. Prior to the 1997 Asian Financial Crisis, the average standard of living rapidly increased in Thailand (Kakwani 1999). However,

following the crisis the standard of living (based on real income levels) of all sectors of Thai society fell by up to 28 percent (Kakwani and Pothong 2000).

A criticism of using standard of living as an estimate of social well-being is that it implicitly assumes current income distribution levels are optimal. The flaw of this assumption is best illustrated by Stoleru’s (1975) question: ‘when you say that the standard of living will double, does that mean that those who have one car will have two and that those who have none will still have none?’ (p. 34).

A higher level of welfare measurement is quality of life. Quality of life differs from standard of living in that it includes a limited set of non-welfaristic issues. In addition to economic measures, considerations such as equity, political liberty, social relationships and the environment (Sen 1999b; Hjalte et al. 1977; Gerdtham and Johannesson 2001). This understanding can be represented by:

QoL = w (SoL, NW) [2.2]

where QoL represents quality of life, SoL represents the standard of living and NW represents non-welfaristic issues.

The inclusion of these non-welfaristic factors result in a de-linking of well-being from the economic (standard of living) and so this new measure of well-being can actually increase or decrease despite constant positive increases in national income. It becomes possible therefore, to say that whilst standard of living may have increased, quality of life has been reduced. Both individual and social quality of life involve more than just increases in income (Ng 2001; Ng and Ng forthcoming). Indeed, this thesis will later argue that as society is systems based (see this chapter, Section 2.2.2.3), increases in income may negatively impact other quality of life factors causing a reduction in this measure.

Overarching both standard of living and quality of life, is social welfare. The use of this terminology can cause further confusion as social welfare often refers to the aggregation of individual welfare (Sen 1970; Ng 1979; Hufschmidt et al. 1983; Chakravarty 1990). Within this thesis, this aggregation is referred to as either society’s welfare, national welfare or aggregate welfare. Social welfare is the peak concept and includes all welfaristic (W) and non-welfaristic issues (NW) within a systems analysis that impact on an individual or society’s joie de vivre. It is similar to Pearce et al.’s (1990) vector of desirable social objectives, which includes increasing income and improving its distribution, improving health and education outcomes and access to resources and increasing basic freedoms. It can be represented by:

SW = w (QoL, W, NW) [2.3]

Within this thesis, social welfare will be measured by adjusting national income through cost-benefit analysis and through the attainment of a specified set of hierarchical needs. Defining well-being in a hierarchical fashion assists in analysing the desirability of economic growth as the desirability will be different at each level within the hierarchy. Economic growth is more likely to be desirable in terms of standard of living than social welfare when standard of living is a simple function of national income compared to social welfare, which is a function of national income but also all other non-welfare and welfare issues.

2.2.2.2 Economic Growth

The theory of economic growth is well developed (important classic texts include amongst others Harrod 1948; Domar 1947; Samulson 1950; Swan 1956; Solow 1957; Abramovitz 1956; Denison 1962; Romer 1990). Yet, few conclusions within this literature remain uncontested (Mussa 1999). Economic growth is a factor of economic variables, social variables and political variables (Lane and Errson 1990).

Economic growth is a dynamic concept which involves ‘the steady process of increasing productive capacity of the economy’ (Bancock et al. 1981, p. 144). Economic growth is not static in that it cannot be measured in “snapshots” of time, but can only be captured by analysing productive capacity over a period of time. ‘The long-term economic growth of a nation can be attributed to the growth of measured factor inputs, such as physical capital, labour and human capital, and to technical progress (improving improvements in efficiency’ (Lau 1996, p. 63).

The concept of calculating a nation’s product predates the development of the current system of standard national accounts and was explored in Petty’s Political Arithmetik, Smith’s Wealth of Nations and Marshall’s Principles of Economics. The current manner of calculating a nation’s economic output was formulated during the decade after the Depression (see Kuznets 1941), in part, as a response to the new Keynesian approach of macro-management of the economy (Manning 2001). This system of aggregating national economic output continued to evolve and the United Nations presented various codified systems in 1953, 1968 and 1993. Presently, nearly all nations are implementing this system. Thailand has a very sophisticated government ministry responsible for the collection and compilation of these national accounts. The National Statistics Office (NSO) regularly publishes the national accounts, though Thailand is primarily using SNA 58 with some aspects of SNA 68 incorporated (NSO 1997).

Whilst economic growth is a dynamic concept, static concepts compared across time can be used to calculate it. GDP is the total value of final goods and services at market prices produced in an economy during a specific period. It excludes income earned by domestic residents from overseas investments but does include income earned in the domestic economy by non-residents. GDP does not deduct the value of expenditure on capital goods for replacement purposes. GDP is the volume of commodities and services produced but corrected for all duplications in fuel, raw materials, semi-finished and finished products. However deductions for the current consumption of capital equipment are not considered (Kuznets 1941).

GDP is a measure of what is produced within the economy and therefore is a measure of economic activity. GDP includes activities such as food production, textiles and manufacturing and diseconomies such as defense spending, the justice system and advertising. Quite clearly GDP accurately measures economic activity, but is this the same as measuring welfare? Pigou noted that economic welfare is not a barometer ‘or index of total welfare’ (1962, p. 12). But he also noted though that there is an “unverified probability” that this is actually the case. ‘The economic welfare of the country is intimately associated with the size of the national dividend, and changes in economic welfare with changes in the size of the dividend’ (Pigou 1962, p. 50 – also see de Graaft 1957 for another early view that social welfare had both economic and non-economic variables). Comparing GDP per capita, both within nations and across nations, is a frequently undertaken exercise (Sen 1982).

Within the literature, a variation of GDP, Gross National Product (GNP), is also often used to capture economic performance. The difference between GDP and GNP is that GNP includes income earned by nationals overseas (GDP does not) but it excludes the income earned domestically by non-nationals (GDP does). As with GDP, no allowance is made for the depreciation or consumption of capital used in production. For economies with a high reliance on foreign investment, GDP is usually higher than GNP as it includes the income earned by this foreign investment. For economies that are net investors, GNP is usually higher than GDP as overseas income is taken into account.

The differences between GDP and GNP however are generally not important enough for absolute use of either concept to be vital to the discussion of economic growth and welfare. Quite often these terms will be used interchangeably (for example, see Harris and Fraser forthcoming). Close readers of this thesis will note a number of examples where authors discussing GNP are compared and contrasted with authors discussing GDP. Given the closeness of these concepts, this is considered reasonable (unlike that of the inappropriate interchangeable use of various terminology used to describe well- being).

So whilst GDP and GNP are considered almost interchangeable, another measure, whilst appearing similar has some distinct advantages over both of these terms (Dasgupta 1995). National income (or National Product at Factor Cost (NNP)) is the same as GNP except that is is calculated after allowances have been made for the depreciation or consumption of capital used in the production process. By taking into account the use of capital and depreciation, some of the costs of economic growth, previously not taken into account, are removed from the final figure. Thus, if high levels of GDP (or GNP) are achieved through high levels of depreciation or consumption of capital, national income will capture this. Thus, national income can be considered a better measure of society’s welfare than either GDP or GNP (Weitzman 1976; Clarke and Islam 2002a).

In addition, per capita versions of each of these static standard national account measures (GDP, GNP, national income) can also be used to measure economic growth. Per capita versions are estimated by dividing the total by the population. As this thesis is concerned with welfare analysis, economic growth will be measured by the percentage change in GDP per capita between two specified time periods (usually annually). As GDP is a “snapshot” of an economy at a single point in time, comparing GDP at different times allows economic growth to be calculated. Economic growth is the percentage change in GDP over a specified time period.

As with comparisons between GDP and GNP, it is understood within this thesis that economic growth estimates based on GDP and GDP per capita are also closely related and often discussion involving one will be compared with discussion involving the other. For consistency though, unless otherwise mentioned, economic growth within this thesis is defined as the annual change in GDP per capita.

Table 2.1 GDP per capita and National Income per capita economic growth rates for Thailand, 1975-1999 (1988 prices) Year GDP per Capita (1988 baht) Annual Growth Rate in GDP per capita (%) Annual Growth Rate in GDP (%) National Income Per capita (1988 baht) Annual Growth Rate in National Income per capita (%) Annual Growth Rate in National Income (%) 1975 14662 7.4 9.5 12143 6.9 8.7 1976 15754 7.5 10.2 13047 5.9 8.2 1977 16942 7.6 10 13872 7.2 9.1 1978 18237 3.2 5.2 14941 1.6 3.5 1979 18819 3.4 5.3 15184 3.2 5.0 1980 19458 3.8 5.9 15690 3.1 4.9 1981 20206 3.4 5.4 16184 3.8 5.7 1982 20883 4.1 5.5 16829 3.3 4.6 1983 21729 3.6 5.8 17396 1.9 3.9 1984 22504 2.2 4.6 17728 2.1 4.4 1985 22996 3.2 5.5 18109 1.7 3.8 1986 23722 7.8 9.6 18417 7.4 8.9 1987 25561 11 13.2 19886 8.8 10.6 1988 28380 10.3 12.2 21811 10.2 11.7 1989 31316 10.4 11.2 24286 8.3 9.0 1990 34565 7.3 8.5 26481 6.3 7.4 1991 37073 6.6 8.1 28256 5.6 7.0 1992 39506 8.3 9.3 29943 6.5 7.4 1993 42765 5.6 7 32026 7.1 8.3 1994 45174 7.4 8.1 34470 7.4 8.0 1995 48511 6.1 7.3 37232 2.6 3.7 1996 51489 -2.5 -1.4 38227 -4.2 -3.0 1997 50184 -9.6 -8.7 36669 -14.8 -13.6 1998 45348 1 1.3 31952 2.7 3.0 1999 45789 32828

2.2.2.3 Systems Approach

Society is made up of many sub-systems (or domains) that inter-relate in a dynamic manner (Dopfer 1979; Clayton and Radcliffe 1996; Bossell 1999; Islam and Clarke 2001a; Islam et al. 2001). These domains include, but are not limited to, the social, economic, environmental, political and spiritual. Each of these sub-systems has a direct impact on society’s well-being and therefore, measures of social welfare must take into account each of these sub-systems for that measure to be legitimate. However, it is rare for national welfare measurement to include all of these sub-systems (see Islam 2001 for a measure containing the social, environmental and economic).

Aggregated standard national accounts are a measure of the aggregation of the different parts of the economic sub-system. Therefore, changes in unadjusted GDP per capita or national income per capita reflect only changes in that particular sub-system. As society is systems based however, the changes in the economy (as indicated by increasing or decreasing GDP or national income) have an impact on the social, environmental, political and spiritual sub-systems as well. These changed sub-systems then impact on the economic and the dynamic inter-relationships continue. These inter-relationships are not direct and causal and it cannot be assumed that a positive movement in the economic sub- system results in a positive movement within the other sub-systems.

Understanding society as systems-based can impact on policy-makers’ planning paths of increased development or welfare. Within a total systems approach, development or increasing society’s welfare, can be described as:

any change of the total system in a desired direction in terms of desiderata of all systems, under the condition that none of the desiderata must take on a value which is below a specific minimum value. (Dopfer 1979, p. 27)

Under this criteria, a focus on increasing the aggregate value will only add to society’s welfare if it does not come at the expense of other sub-systems such as the environment.

If national income ‘is now mainly a measure of how fast resources are squandered and converted into money flows, irrespective of their effect on society’ (Bossell 1999, p. 12), then increases in unadjusted national income are likely to impact negatively on at least one of the other sub-systems of the social, environmental, political or spiritual (Arbhabhirma et al. 1988).

Further, a concentration on the importance of unadjusted national income per capita or economic growth as a measure of society’s welfare is also fraught with danger as unadjusted national income is simply the aggregation of one sub-system of many that in total make up society. The inter-relatedness of these sub-systems means that achieving increased economic growth may be obtained at the direct expense of one or more other sub-systems which will feedback not only to future economic consequences but will also have immediate welfaristic consequences.

The consequence for social planners in Thailand (for example) is that trying to replicate the development experience of Western Europe or even the NICs more recently, is not possible because the very occurrence of that previous development prohibits Thailand repeating it (Dopfer 1979; Clayton and Radcliffe 1996; Ormerod 1994).

The systems approach can be operationalised through the adjusting of aggregated standard national accounts so that the impacts of the separate costs and benefits on economic growth for the economic, social, political, environmental and spiritual sub- systems are incorporated (Islam and Clarke 2001a, forthcoming; Clarke and Islam forthcoming). Or the systems approach can be operationalised by considering how the fulfillment of various hierarchical needs can add to social welfare (Islam and Clarke 2001b).

2.3 THAILAND – A REVIEW OF ITS HISTORY, ECONOMIC GROWTH